Real Estate: August 2005 Archives

No finished article today, so I thought I'd do a round-up of interesting stuff on one of my pet topics elsewhere.



This study was in the news today. Here is the article. If you're a regular here, it was old news.

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Speaking of the housing market, I've been getting spam the last few days saying "refinance and skip two payments!" This is the mark of scum, as I explain in this article.



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Some issues from the North County Times. All previously reported here.



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Internet Fraud and Complaint Center. If you've been a victim of mortgage fraud, or believe you have, here's an easy place to report it. I also put it in the resource list to the right.



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Michigan looking at predatory lending. Iowa passes one.



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A Neat little resource here at Stop Mortgage Fraud.com. Go here to actually report fraud. I'm also adding these links to the resources list to the right. They repeat the basics of several things I say in my articles.



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A disturbing case that I just found out about. These people are con artists. Inflexible rule: If it seems too good to be true, it isn't true. If we could really do this, why isn't everyone doing it?



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This guy is stuck at denial. Both San Diego asking and selling prices have slipped in the last several months, up to 5% and maybe more in what were some of the hottest neighborhoods, a fact he could verify by looking at MLS. Income is still rising, and unemployment remains essentially unchanged.



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San Diego Housing a few months old. We're not seeing this now.



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An interesting correlation. Bigger gap between top earners and median earners drive housing prices higher.



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A recent article on an ongoing problem that I have noted here several times. People are committing fraud. Agents and loan providers and clients.



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No mortgage discrimitation found.



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Reasons why the government wants appreciation to continue. Somehow, I doubt they are prepared for when it stops.



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Independent verification of the difficulties I talk about in this article, although I go into more depth and specifics about the problems.



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Scams:



HELP FOR FIRST-TIME HOME BUYERS VICTIMIZED IN REAL ESTATE SCAM

Home-buying scam leads to prison





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Some more resources:

Don't be Fooled by a Mortgage Scam

Bankruptcy Scam Operators Can Lock You Out of Your Home

Beware of Predatory Practices in Home Mortgage Lending

Yesterday, I checked my referral logs and found an article where somebody was essentially saying "If you want to be depressed, go read this site and then go rent somewhere for the rest of your life".



I can understand where the sentiment is coming from, particularly if they were of the sort of person who wants to meander around occasionally looking at houses until they find one they like, then sign a couple of papers and move in. Lest it not be obvious to you, these are the elements of disaster. I would never put an offer in without looking at at least ten to fifteen properties in the area, without aggresively shopping the mortgage market, or without taking positive steps to insure that I have at least as much leverage over the service providers as they do over me.



The fact is that for most people, the largest transactions of their life are all going to be real estate related. When the average transaction is in the hundreds of thousands of dollars, and those transactions are so complex as to defy understanding by non-professionals, you have the elements for a system that's going to suffer abuses. Many past abuses have been corrected through the passage of legal impediments, but many others remain, and some are illegal but keep happening anyway (See my article on "What to beware in Third Party Services linked at the bottom of this article).



What I am trying to do here is give you the insider's appreciation for what goes on (although not the professional's specialized knowledge. It may not be "rocket science", but to pretend you can pick up everything a working professional learns and gets exposed to every day by reading a few articles would be false, and of no service to you). With this information, you can debunk the worst of the nonsense that you are told and get a better bargain for yourself no matter who your real estate agents and loan providers and financial planners and whatnot are. I am writing about knowledge that you need to have to understand the system, and I'm not pulling any punches about what goes on, anywhere in the transaction. I'm trying to show you limitations and blind spots in the information you may receive, and show you strategies that put you in a stronger position. Most of the articles I have written thus far pertain to real estate and mortgages, but this applies to other areas I intend to work in as well.



So if you're the sort of person who prefers to go on in an "ignorance is bliss" state of mind, the education may be disturbing. Indeed, many people seem determined to go about their real estate (and other) transactions in this state of mind. They resist when I attempt to educate them in the realities of the market, figuratively in the same vein as people who put their hands over their ears and say "la-la-la! I am not listening! la-la-la! I am not listening!" It's like they want to get taken, or at least not having to think about it is worth more to them than the money they're being taken for. Since the money they're being taken for can easily go into five figures whether it's a purchase or a refinance, I find this difficult to believe. If you're making that much, you shouldn't need a loan.



Nobody does loans for free. Nobody does real estate for free (nobody does financial planning for free, legal advice for free, etcetera). "Free" is likely to be the most expensive service of all (This is different from at such a rate that yield spread pays all costs). If you're of the school that forewarned is forearmed, what you're reading here should give you the information you need to guard yourself against the deceits in the system. I've done lists of "red flags," warning signs not to do business there, "Questions to ask" that you can print out and take with you, "Salesgoodspeakian to English," debunking of pat phrases used to mislead you and what they really mean. I've given you strategies (apply for back up loans, order the appraisal yourself, don't sign exclusive buyer's agreements, etcetera) that give you more leverage down the line. I've gone through what real closing costs are, what points are, and warned you of the dangers of shopping for loans or real estate by what they tell you the payment will be. Most importantly, I've shown you how to keep control of your transaction by being aware at the start of the process what the likely bumps are going to be.



Not everyone in the business does everything I've warned you about. There are ethical providers out there; people like myself who will walk away from business or tell clients the pitfalls if something is not in the client's best interest. You can find us if you look for us. Nor are those who practice otherwise necessarily evil. Real Estate, financial planning, and many other fields are set up such that someone new in the business learns from somebody experienced. In many cases, they've been told "This is the way things are," and they just don't know any better. The person who taught them didn't know any better. It is my aim to ensure that people "know better." The change is not going to come from within the industry - the system is set up for their best advantage, and any one agent or loan provider unwilling to toe the industry line is at a competitive disadvantage, and their business is likely to fail. It's kind of the tragedy of the commons: their own individual behavior shows them nothing to gain, and everything to lose, by full truthful disclosure, and where there are people who do it anyway, we are comparatively few. Therefore, the change must come from outside the industry. So by being knowledgeable consumers and helping yourselves, you provide impetus for practitioners to reform their practices for everyone. It may take a long time, and it may never be complete, but if it's never started I can guarantee it won't get done.

UPDATED here

The scope of the problems that exist in the United States Mortgage market are huge. Enormously, mind-bogglingly, "How Big Is Space?" type huge. Yet, the problems are almost entirely on a retail level, when one provider works with one consumer. The system works, and it works extremely well. Consider:



Most consumers in Europe or any other country in the world would trade their loans for yours in a heartbeat. Rates there are typically around nine percent or so. Here, that's a ratty sub-prime rate. Mexican rates start at about fourteen percent. Hard money lenders here can sometimes do better than that.



No matter where you are in the United States, you have ready access to home loan capital. It's considered almost a one of our inalienable rights. Due to our secondary markets, as long as you can meet some pretty basic guidelines, you can find somebody eager to lend to you. You can find very long mortgage terms and very short terms. You can find loans without prepayment penalties, and you can choose to get a lower rate by taking a prepayment penalty. You may end up with something that's not as good as someone else if their situation is better, and the lender wants more money to compensate them for the risk of your loan, but even so, the rates here are better than almost anywhere else in the world.



Consumer protections are also better here than almost anywhere else in the world. There are federal laws that give you time to call off a transaction if you change your mind, disclosure requirements, consumer protections against builders with teeth in them, and a tort system that, if it does go overboard some times, still gives you an excellent chance at recovering what unethical people took from you. Many states (California, for instance) go well beyond mandatory federal consumer protections.



So keep this in mind when you see me ranting on and on about the problems with our financial markets here. Consider a capital market willing to loan the average person several years worth of wages. I can get a family making $6000 per month a loan for nearly $400,000 on an A paper 30 year fixed rate basis - most expensive loan there is in the most favorable, hardest to qualify for loan market - no surprises, no prepayment penalties, no "gotchas!" of any kind, and I can do it without hiding or shading the truth in the least. That's more than every dollar they will make for the next five years, and this family is every bit as chased after as the richest person in the world (more actually, because there are more of them). When you stop and think about it, that's a pretty wonderful situation. For all of the rants I make, the unethical things that happen, and the problems that exist in our capital markets, they are pretty damned good, and have chosen a set of tradeoffs that appears to be working better than anywhere else in the world, at any other time in history.

Updated here






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